Research key to boosting productivity

A leading economist has warned Western Australia is falling behind other developed economies in research and development investment, threatening the state’s productivity.

Chamber of Commerce and Industry WA chief economist John Nicolaou told guests at a business function in Perth the comparatively low spend on research and development in the state was a “key performance indicator” of a slump in productivity over the past decade.

WA’s research and development spend as a percentage of economic output currently sits at just 1.7 per cent, according to Mr Nicolaou, placing it below the national average of 2.2 per cent and the OECD average of 2.4 per cent.

The state would need to spend an additional $1 billion a year to reach the OECD average and an extra $4.6 billion to reach world-leading levels.

 “I think one of the key enablers to driving a productivity reform agenda has to be innovation,” Mr Nicolaou told Business News.

“The origins of that has to be research and development and unfortunately the evidence shows that Western Australia is not doing enough as a whole in investing in that start phase of the innovation cycle.”

His comments were backed at the forum by University of Western Australia vice chancellor Paul Johnson, who said the state needed to develop innovation hubs in areas of comparative advantage to future-proof its economy.

“This is not a concept that is driven by a particular economic or political ideology,” Professor Johnson said.

“It’s driven by a recognition that it works.”

Energy and minerals, oceanography, biodiversity, agriculture and big data were some of the areas where WA could capitalise on its research capabilities, Professor Johnson said.

“We can be sure that there will come a time when our mineral resources become uncompetitive with cheaper supplies located elsewhere,” he said.

“We need to leverage off our current economic strengths and comparative advantage to build knowledge industries in parallel with the existing industrial and economic state.”

Mr Nicolaou also expressed concern that WA’s tertiary education attainment rate was lower than the national average even when taking into account the state’s high number of trainees.

“We all know that increases in the level of tertiary education attainment have significant spin-off benefits in terms of increased participation but also increased productivity in the workforce,” he said.

While dismissing speculation WA might be in a recession following two quarters of negative growth in the domestic economy (state final demand), Mr Nicolaou took aim at the state government for exceeding its self-imposed spending targets to the tune of $3.1 billion over the past five years.

“The cornerstone of good financial management is the control of expenses,” Mr Nicolaou said.

“It isn’t helped when you look at the infrastructure spend that the priorities that are established aren’t based on any solid framework for assessing projects.

“There’s no cost-benefit analysis attached to (the government’s planned) rail projects and there’s no prioritisation process attached to what are the projects that are going to deliver the greatest economic and social benefits for the state.”

Committee for Perth chief executive Marion Fulker said while there was growing consensus around the need to develop major projects, there was a lack of vision around infrastructure planning and scarce funding.

“We’re relying on the federal government for massive injections of cash for infrastructure (but) I think we’re going to be very sorely disappointed,” Ms Fulker said.